Don’t count on the Fed rescuing the economy if the U.S. goes over the fiscal cliff.

That was one of the messages Fed Chairman Ben Bernanke offered this afternoon in a speech in New York. He said the central bank doesn’t have the tools to offset the trouble that could arise should lawmakers fail to address the fiscal cliff.

Just like that, stocks are trading around session lows.

The Dow is down 88 points, or 0.7%, to 12707, after previously hovering around the flat line in the minutes leading up to Bernanke’s speech Hewlett-Packard and Intel Corp. are leading the blue chips lower. Financials are one of the few bright spots, as Bank of America is holding earlier gains.

The S&P 500 recently lost 0.6% to 1378 and the tech-heavy Nasdaq Composite fell 0.7% to 2900.

Bernanke also didn’t rule out the possibility of cutting interest rates paid to banks for their excess reserves, although such a stimulative effect would have a small impact on the economy, he says.

Overall, Bernanke offered few fresh details on the Fed potentially expanding its massive bond-buying efforts, which may be spooking some investors, according to David Lutz, a trader at Stifel Nicolaus. Operation Twist is scheduled to end by the end of the year.

But the fiscal cliff of tax increases and spending cuts set to kick in early next year is the big concern in the market right now. Bernanke explicitly said the Fed’s powers are not “infinite.”

Such cautionary remarks aren’t sitting well with investors right now.

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Comments (3 of 3)

The Fed should send every US resident a billion dollars (it would be easy, all they'd have to do is print them). Think of the increase in consumer spending! Then, the administration could raise taxes on the millionaires and billionaires and all our problems would be solved!!!

2:05 pm November 20, 2012

lbhthink wrote :

Congress better get to work and hammer out a deal otherwise the equity market will continue to head south for the winter.

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